---

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

______________________

Form 10-Q/A

|x |  | Quarterly report pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of
  1934
|- |  | -----------------------------------------------------------------------------------------------

For the quarterly period ended July
31, 2007

OR

|o |  | Transition report pursuant
      to Section 13 or 15(d) of the Securities Exchange Act of
  1934
|- |  | ------------------------------------------------------------------------------------------------

Commission File Number:
001-11807

______________________

UNIFY CORPORATION(Exact name of registrant as specified in its
charter)

|Delaware                        | 94-2710559                     
|------------------------------- | -------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification
|incorporation or organization)  | Number)                        

2101 Arena Blvd, Suite
100Sacramento, California 95834(Address of principal executive offices)

Telephone: (916)
928-6400(Registrants telephone number,
including area code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.

YESx      NO     o

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).

YES    
o      NO     x

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act),

YES     oNO     x

Indicate the number of shares outstanding
of each of the issuers classes of common stock, as of the latest practicable
date: 6,037,902 shares of common stock, $0.001 par value, as of August 31,
2007.





---

---

---

EXPLANATORY NOTE

Amendment No. 1 to the Quarterly
Report on Form 10-Q/AFor the Quarterly Period Ended July 31, 2007

In December 2007, an error was identified related to our accounting for the acquisition of Gupta Technologies LLC
(Gupta) in November 2006. The acquisition of Gutpa was part of a purchase and
exchange agreement whereby, in addition to acquiring Gupta, the Company also
sold its Insurance Risk Management Division. In accounting for the purchase and
exchange transaction, the Company incorrectly capitalized certain future
payments as direct costs of the sale and acquisition. The future payments should
have been expensed and in this filing the Company is restating its unaudited
condensed consolidated financial statements. The Company is also revising Item
4. Controls and Procedures.

2

---

UNIFY CORPORATIONFORM
10-Q

INDEX

|PART I.        |  | FINANCIAL INFORMATION                                                                                                           | 4 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------- | --
|               |  |                                                                                                                                 |   
|Item 1.        |  | Financial Statements                                                                                                            | 4 
|               |  |                                                                                                                                 |   
|               |  | Unaudited Condensed Consolidated Balance Sheets (Restated) as
      of July 31, 2007 and April 30, 2007                         | 4 
|               |  |                                                                                                                                 |   
|               |  | Unaudited Condensed Consolidated Statements of Operations for the
      three months endedJuly 31, 2007 and 2006                | 5 
|               |  |                                                                                                                                 |   
|               |  | Unaudited Condensed Consolidated Statements of Cash Flows
      (Restated) for the three months endedJuly 31, 2007 and
    2006 | 6 
|               |  |                                                                                                                                 |   
|               |  | Notes to Unaudited Condensed Consolidated Financial
      Statements                                                            | 7 
|               |  |                                                                                                                                 |   
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and
      Results of Operations                                     | 19
|               |  |                                                                                                                                 |   
|Item 3.        |  | Quantitative and Qualitative Disclosures about Market
      Risk                                                                | 26
|               |  |                                                                                                                                 |   
|Item 4.        |  | Controls and Procedures                                                                                                         | 26
|               |  |                                                                                                                                 |   
|PART II.       |  | OTHER INFORMATION                                                                                                               | 27
|               |  |                                                                                                                                 |   
|Item 1.        |  | Legal Proceedings                                                                                                               | 27
|               |  |                                                                                                                                 |   
|Item 6.        |  | Exhibits                                                                                                                        | 28
|               |  |                                                                                                                                 |   
|SIGNATURE      |  |                                                                                                                                 | 29
|               |  |                                                                                                                                 |   
|CERTIFICATIONS |  |                                                                                                                                 | 30

3

---

PART I. FINANCIAL
INFORMATION

Item 1. Financial
Statements

UNIFY CORPORATION AND
SUBSIDIARIESUNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS(In thousands)

|                                           |  | July 31,          |         | April 30,        
|------------------------------------------ |  | ----------------- | ------- | -----------------
|                                           |  | 2007              |         | 2007             
|                                           |  | (As
    Restated) |         | (As
    Restated)
|ASSETS                                     |  |                   |         |                  
|Current
      assets:                      |  |                   |         |                  
|Cash
      and cash equivalents            |  | $                 | 1,870   |                  
|Accounts receivable, net                   |  |                   | 3,722   |                  
|Prepaid expenses and other current assets  |  |                   | 472     |                  
|Total current assets                       |  |                   | 6,064   |                  
|                                          
|Property and equipment, net                |  |                   | 219     |                  
|Investments                                |  |                   | 214     |                  
|Goodwill                                   |  |                   | 5,644   |                  
|Intangibles,
      net                     |  |                   | 2,782   |                  
|Other assets, net                          |  |                   | 372     |                  
|Total assets                               |  | $                 | 15,295  |                  
|                                          
|LIABILITIES AND STOCKHOLDERS'
      EQUITY |  |                   |         |                  
|Current
      liabilities:                 |  |                   |         |                  
|Accounts payable                           |  | $                 | 904     |                  
|Current portion of long term debt          |  |                   | 1,429   |                  
|Accrued compensation and related expenses  |  |                   | 772     |                  
|Accrued acquisition costs                  |  |                   | 856     |                  
|Other accrued liabilities                  |  |                   | 952     |                  
|Deferred revenue                           |  |                   | 5,009   |                  
|Total current liabilities                  |  |                   | 9,922   |                  
|                                          
|Long term debt, net                        |  |                   | 4,937   |                  
|Other long term
      liabilities          |  |                   | 108     |                  
|                                          
|Commitments and contingencies              |  |                   |        |                  
|                                          
|Stockholders equity:                      |  |                   |         |                  
|Common stock                               |  |                   | 6       |                  
|Additional paid-in capital                 |  |                   | 65,032  |                  
|Accumulated other comprehensive income     |  |                   | 63      |                  
|Accumulated deficit                        |  |                   | (64,773 | )                
|Total stockholders equity                 |  |                   | 328     |                  
|Total liabilities and stockholders equity |  | $                 | 15,295  |                  

See accompanying notes to condensed
consolidated financial statements.

4

---

UNIFY CORPORATION AND
SUBSIDIARIESUNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share
data)

|                                                    |  | Three Months Ended
|--------------------------------------------------- |  | ------------------
|                                                    |  | July 31,          
|                                                    |  | 2007              
|Revenues:                                           |  |                   
|Software licenses                                   |  | $                 
|Services                                            |  |                   
|Total revenues                                      |  |                   
|                                                   
|Cost of Revenues:                                   |  |                   
|Software licenses                                   |  |                   
|Services                                            |  |                   
|Total cost of revenues                              |  |                   
|Gross profit                                        |  |                   
|                                                   
|Operating Expenses:                                 |  |                   
|Product development                                 |  |                   
|Selling, general and administrative                 |  |                   
|Total
      operating expenses                      |  |                   
|Income (loss) from operations                       |  |                   
|Other income
      (expense), net                   |  |                   
|Loss
      from continuing operations before income |  |                   
|taxes                                               |  |                   
|Provision for
      income taxes                    |  |                   
|Loss
      from continuing operations               |  |                   
|Loss from discontinued operations                   |  |                   
|Net
      loss                                      |  | $                 
|                                                   
|Net loss per share:                                 |  |                   
|Basic earnings per share:                           |  |                   
|Continuing operations                               |  | $                 
|Discontinued operations                             |  |                   
|Net loss                                            |  | $                 
|                                                   
|Dilutive earnings per share:                        |  |                   
|Continuing operations                               |  | $                 
|Discontinued operations                             |  |                   
|Net loss                                            |  | $                 
|                                                   
|Shares used in computing net loss per share:        |  |                   
|Basic                                               |  |                   
|Dilutive                                            |  |                   

See accompanying notes to condensed
consolidated financial statements.

5

---

UNIFY
CORPORATION AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS(In
thousands)

|                                                                                      |  | Three
      Months Ended July 31,
|------------------------------------------------------------------------------------- |  | ---------------------------------
|                                                                                      |  | 2007                             
|                                                                                      |  | (As Restated)                    
|Cash flows from operating activities:                                                 |  |                                  
|Net loss                                                                              |  | $                                
|Loss
      from discontinued operations                                               |  |                                  
|Loss
      from continuing operations                                                 |  |                                  
|                                                                                     
|Reconciliation of loss to net cash provided by continuing operating
      activities: |  |                                  
|Depreciation                                                                          |  |                                  
|Loss on disposal of equipment                                                         |  |                                  
|Amortization of intangibles assets                                                    |  |                                  
|Fulfillment of support obligations                                                    |  |                                  
|Amortization of discount on notes
payable                                             |  |                                  
|Stock based compensation expense                                                      |  |                                  
|Changes in operating assets and
    liabilities:                                      |  |                                  
|Accounts receivable                                                                   |  |                                  
|Prepaid expenses and other current
assets                                             |  |                                  
|Other long term assets                                                                |  |                                  
|Accounts payable                                                                      |  |                                  
|Accrued compensation and related
expenses                                             |  |                                  
|Accrued acquisition costs                                                             |  |                                  
|Other accrued liabilities                                                             |  |                                  
|Deferred revenue                                                                      |  |                                  
|Other long term liabilities                                                           |  |                                  
|Net cash provided by continuing operating
activities                                  |  |                                  
|                                                                                     
|Cash flows from investing activities:                                                 |  |                                  
|Acquisition, net of cash acquired                                                     |  |                                  
|Purchases of property and equipment                                                   |  |                                  
|Net cash used in
      investing activities of continuing operations                  |  |                                  
|                                                                                     
|Cash flows from financing activities:                                                 |  |                                  
|Proceeds from issuance of common stock                                                |  |                                  
|Borrowings under debt obligations                                                     |  |                                  
|Principal payments under debt
obligations                                             |  |                                  
|Net cash provided by (used in) financing activities from continuing
      operations  |  |                                  
|                                                                                     
|Effect of exchange rate changes on cash                                               |  |                                  
|                                                                                     
|Cash flows of discontinued operations:                                                |  |                                  
|Net cash used in operating activities                                                 |  |                                  
|Net
      cash used in investing activities                                           |  |                                  
|Net cash used in financing activities                                                 |  |                                  
|Net cash used in discontinued operations                                              |  |                                  
|                                                                                     
|Net increase (decrease) in cash and cash
equivalents                                  |  |                                  
|Cash and cash
      equivalents, beginning of period                                  |  |                                  
|Cash and cash equivalents, end of period                                              |  | $                                
|                                                                                     
|Supplemental cash flow information for continuing
      operations:                   |  |                                  
|Cash received (paid) during the period
    for:                                       |  |                                  
|Interest                                                                              |  | $                                

See accompanying notes to condensed
consolidated financial statements.

6

---

UNIFY CORPORATION AND
SUBSIDIARIESNOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJuly 31, 2007

1. Basis of Presentation and
Restatement of Financial Statements

Basis of Presentation

The condensed consolidated financial
statements have been prepared by Unify Corporation (the Company, we, us,
our) pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). While the interim financial information contained in this
filing is unaudited, such financial statements, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for a fair presentation. The results for interim
periods are not necessarily indicative of the results to be expected for the
entire fiscal year. These financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto, together with
Managements Discussion and Analysis of Financial Condition and Results of
Operations, which are included in the Companys Annual Report on Form 10-K/A for
the fiscal year ended April 30, 2007 as filed with the SEC.

Restatement

In December 2007, the Company determined
that due to an accounting error it would restate its consolidated financial
statements for the fiscal year ended April 30, 2007 included in its 2007 Annual
Report on Form 10-K and its condensed consolidated financial statements for the
quarters ended January 31, 2007 and July 31, 2007. The decision to restate the
consolidated financial statements was made by the Audit Committee of the
Companys Board of Directors. The restatement reflects the
identification of an error related to the accounting for the acquisition of
Gupta Technologies LLC (Gupta) in November 2006. The acquisition of Gutpa was
part of a purchase and exchange agreement whereby, in addition to acquiring
Gupta, the Company also sold its Insurance Risk Management Division. In
accounting for the purchase and exchange transaction, the Company incorrectly
capitalized $384,000 in future payments as direct costs of the sale and
acquisition. The future payments of $384,000 have been determined to be indirect
costs of the sale and should have been expensed. The restatement increases the Companys loss
from discontinued operations for the fiscal year ended April 30, 2007 and the
quarter ended January 31, 2007 by $384,000 and increases the Companys net loss
by the same amount. The restatement also decreases the amount reported as
goodwill by $384,000 as of April 30, 2007 and the quarters ended January 31,
2007 and July 31, 2007.

The following table reflects the impact of
the restatement on the Companys Unaudited Condensed Consolidated Balance Sheet
as of July 31, 2007 and April 30, 2007 (in thousands):

|                                                 |  | July 31, 2007 |         | April 30, 2007
|------------------------------------------------ |  | ------------- | ------- | --------------
|                                                 |  | Amounts       |         |               
|                                                 |  | Previously    |         | As            
|                                                 |  | Reported      |         | Restated      
|ASSETS                                           |  |               |         |               
|Goodwill                                         |  | $             | 6,028   |               
|Total Assets                                     |  | $             | 15,679  |               
|                                                
|LIABILITIES AND STOCKHOLDERS' EQUITY             |  |               |         |               
|Accrued acquisition costs                        |  | $             | -       |               
|Other accrued liabilities                        |  | $             | 1,808   |               
|Accumulated deficit                              |  | $             | (64,389 | )             
|Total stockholders' equity                       |  | $             | 712     |               
|Total liabilities and stockholders'
      equity |  | $             | 15,679  |               

7

---

Revenue Recognition  Continuing
Operations

The Company generates revenue from
software license sales and related services, including maintenance and support,
and consulting services. The Company licenses its products to end-user
customers, independent software vendors (ISVs), international distributors and
value-added resellers (VARs). The Companys products are generally sold with a
perpetual license. The Companys contracts with ISVs, VARs and international
distributors do not include special considerations such as rights of return,
stock rotation, price protection, special acceptance or warranty provisions. The
Company recognizes revenue for software license sales in accordance with
Statement of Position (SOP) 97-2,Software
Revenue Recognition. For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectibility is probable and persuasive evidence of an arrangement
exists.

The Company considers a signed
noncancelable license agreement, a customer purchase order, a customer purchase
requisition, or a sales quotation signed by an authorized purchaser of the
customer to be persuasive evidence that an arrangement exits such that revenue
can be recognized.

The Companys customer contracts include
multi-element arrangements that include a delivered element (a software license)
and undelivered elements (such as maintenance and support and/or consulting).
The value allocated to the undelivered elements is unbundled from the delivered
element based on vendor-specific objective evidence (VSOE) of the fair value of
the maintenance and support and/or consulting, regardless of any separate prices
stated within the contract. VSOE of fair value is defined as: (i) the price
charged when the same element is sold separately, or (ii) if the element has not
yet been sold separately, the price for the element established by management
having the relevant authority when it is probable that the price will not change
before the introduction of the element into the marketplace. The Company then
allocates the remaining balance to the delivered element (a software license)
regardless of any separate prices stated within the contract using the residual
method as the fair value of all undelivered elements is determinable.

We defer revenue for any undelivered
elements, and recognize revenue for delivered elements only when the fair values
of undelivered elements are known, uncertainties regarding customer acceptance
are resolved, and there are no customer-negotiated refund or return rights
affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.

An assessment of the ability of the
Companys customers to pay is another consideration that affects revenue
recognition. In some cases, the Company sells to undercapitalized customers. In
those circumstances, revenue recognition is deferred until cash is received, the
customer has established a history of making timely payments or the customers
financial condition has improved. Furthermore, once revenue has been recognized,
the Company evaluates the related accounts receivable balance at each period end
for amounts that we believe may no longer be collectible. This evaluation is
largely done based on a review of the financial condition via credit agencies
and historical experience with the customer. Any deterioration in credit
worthiness of a customer may impact the Companys evaluation of accounts
receivable in any given period.

Revenue from support and maintenance
activities, which consist of fees for ongoing support and unspecified product
updates, are recognized ratably over the term of the maintenance contract,
typically one year, and the associated costs are expensed as incurred.
Consulting service arrangements are performed on a best efforts basis and are
generally billed under time-and-materials arrangements. Revenues and expenses
relating to providing consulting services are recognized as the services are
performed.

8

---

Revenue Recognition  Discontinued
Operations

For the discontinued product, NavRisk, the
Company recognized revenue for software licenses sales in accordance with
Statement of Position 81-1,Accounting for
Performance of Construction-Type and Certain Production-Type
Contractsand Accounting Research Bulletin
(ARB) 45,Long-Term Construction Type
Contracts. The majority of the software
license arrangements required significant modification or customization of the
underlying software, therefore, revenue was recognized based on contract
accounting under the provisions of Accounting Research Bulletin
45,Long-Term Construction Type
Contractsand Statement of Position
81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsusing the completed-contract method. The Company exercised
judgment in connection with the determination of the amount of software and
services revenue to be recognized in each accounting period. The nature of each
licensing arrangement determined how revenues and related costs were
recognized.

Recently Issued Accounting
Standards

In February 2006, the Financial Accounting
Standards Board (FASB) issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments  An Amendment of FAS
Statements No. 133 and 150. SFAS No. 155: (a)
permits fair value re-measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation, (b)
clarifies that certain instruments are not subject to the requirements of SFAS
133, (c) establishes a requirement to evaluate interests in securitized
financial assets to identify interests that may contain an embedded derivative
requiring bifurcation, (d) clarifies what may be an embedded derivative for
certain concentrations of credit risk, and (e) amends SFAS 140 to eliminate
certain prohibitions related to derivatives on a qualifying special-purpose
entity. SFAS No. 155 became effective for the Company in the first quarter of
fiscal year 2008 and did not have a material impact on our financial position,
cash flows or results of operations.

In June 2006, the FASB issued
Interpretation (FIN) No. 48,Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
109. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return, and provides guidance on derecognition classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN No. 48
is effective for fiscal years beginning after December 15, 2006 and was
applicable for Unify in the first quarter of fiscal year 2008. The adoption of
FIN No. 48 did not have a material impact on our financial position, cash flows
or results of operations.

In September 2006, the FASB issued
Statement No. 157,Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value,
establishes a framework and gives guidance regarding the methods used for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. We are
currently evaluating the impact of adopting SFAS 157 on our consolidated
financial statements.

In February 2007, the FASB issued SFAS No.
159,The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159).
SFAS 159 provides companies with an option to report selected financial assets
and liabilities at fair value at specified election dates. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. We are currently assessing
the impact, if any, of SFAS 159 on our consolidated financial
statements.

In June 2006, the FASB reached a consensus
on EITF Issue No. 06-3,How Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (That Is, Gross versus Net Presentation). EITF 06-3 indicates that the income statement presentation
on either a gross basis or a net basis of the taxes within the scope of the
issue is an accounting policy decision that should be disclosed. EITF 06-3 was
effective for interim and annual periods beginning after December 15, 2006. We
present the taxes within the scope of EITF 06-3 on a net basis.

9

---

2. Acquisitions and Discontinued
Operations

Purchase and Exchange Agreement with
Halo Technology Holdings

On September 13, 2006, the Company entered
into a Purchase and Exchange Agreement with Halo whereby Unify agreed to
purchase all of the outstanding stock of Gupta Technologies LLC (Gupta) from
Halo in exchange for: (i) the Companys Insurance Risk Management (IRM)
division, (ii) the Companys ViaMode software, (iii) $6,100,000 in cash, and
(iv) the amount, if any, by which Guptas net working capital exceeds IRMs net
working capital at the close of the transaction. The Companys acquisition of
Gupta was consummated on November 20, 2006. The total purchase price for Gupta
was $7.7 million. Gupta was founded in 1984 and is a leading producer of secure,
small-footprint, embeddable databases and enterprise application development
tools. The acquisition resulted in additional revenue and market share in the
Companys core markets and significantly enhances the distribution channels
through which the Companys products can be sold. Guptas headquarters was in
Redwood Shores, California with offices in Germany and the UK and has
distributors and partners in more than 40 countries around the world. Gupta
results of operations are included in the Companys results from the date of
acquisition.

On November 20, 2006, the Company entered
into various agreements with ComVest Capital LLC (ComVest) whereby ComVest,
along with participation from Special Situations Funds, provided debt financing
for the Gupta acquisition. The debt financing consisted of $5.35 million in
convertible term notes and a revolver of up to $2.5 million. There are three
tranches that comprise the convertible term notes: Tranche 1 is for $1,000,000,
Tranche 2 is for $3,250,000 and Tranche 3 is for $1,100,000. The term loans have
an interest rate of 11.25% and have repayment terms of 48 to 60 months. As part
of the debt financing the Company provided the lenders with 670,000 warrants to
purchase common stock. There are 200,000 warrants to purchase common stock at a
price of $1.35 per share, 270,000 warrants at a price of $1.60 per share and
200,000 warrants at a price of $1.90 per share. The warrants have an expiration
date of October 31, 2012. Additionally, the holder of the term notes may, at
their option, upon written notice to Unify given at any time and from time to
time from the date Unify has sufficient authorized, unissued and unreserved
shares of common stock convert the outstanding principal and any accrued
interest into shares of Unify common stock. Tranche 1 is convertible at $2.50
per common share and Tranches 2 and 3 are convertible at $5.00 per common share.
Unify may require conversion of the convertible term notes if its common stock
price closes at or above 160% of the applicable conversion price for 20 or more
consecutive market days. The agreement provides for ComVest to have a security
interest in substantially all of the Companys assets. Unify capitalized
$238,000 of debt issuance costs associated with the debt financing and also
recorded a discount on the notes payable of approximately $743,000 that is
attributed to the warrants that were issued in conjunction with the financing.
The debt issuance costs and the discount on notes payable are being amortized
using the effective interest method over the stated life of the related notes.
The amortization of both the debt issuance costs and the discount on the notes
payable was approximately $88,000 in the first quarter of fiscal 2008 and is
included in interest expense. The unamortized amount of the discount on the
notes payable was $553,000 as of July 31, 2007 and $604,000 as of April 30, 2007
and is included in long-term debt, net. As of July 31, 2007 and April 30, 2007
the unamortized portion of debt issuance costs was $177,000 and $214,000,
respectively, which is included in other assets, net.

The Gupta purchase price was allocated to
tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date, November 20, 2006. The
determination of goodwill and intangibles is based on the results of an
independent valuation experts report. The excess of the purchase price over the
fair value of net assets acquired was allocated to goodwill. The Company
believes the fair values assigned to the assets acquired and liabilities assumed
were based on reasonable assumptions. The following table summarizes the fair
values of net assets acquired and represents the opening balance sheet for Gupta
Technologies LLC as of the acquisition date, November 20, 2006 (in thousands):

|Current assets                             | $ | 1,281 
|------------------------------------------ | - | ------
|Property and
      equipment, net          |   | 99    
|Long term assets                           |   | 71    
|Goodwill                                   |   | 6,161 
|Intangibles                                |   | 2,950 
|Total assets                               | $ | 10,562
|                                          
|Current liabilities                        | $ | 2,844 
|Long term
      liabilities                |   | 18    
|Shareholders' equity                       |   | 7,700 
|Total liabilities and shareholders' equity | $ | 10,562

10

---

Active Data Corporation

On May 22, 2007, the Company purchased
privately held Active Data Corporation (ADC) for approximately $420,000 plus
potential earn-out payments over a two year period following the acquisition.
ADC provides application migration software that will add Microsofts .NET
functionality to Unifys Team Developer product and provide an additional
application migration solution for the Company. Pursuant to the terms of the
purchase agreement, Unify acquired all the outstanding stock of ADC. ADC did not
represent the addition of a significant subsidiary as the investment in ADC was
less than 10% of the Companys assets. ADCs total assets at date of acquisition
were less than 10% of Unifys assets and ADCs net loss represented less than
10% of Unifys net loss. The acquisition of Active Data did not have a material
impact on the financials of Unify and the results of operations for Active Data
Corporation are included in the Companys results from the date of acquisition.
The ADC purchase price was allocated to tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values. The determination
of goodwill and intangibles is based on the results of a preliminary report
prepared by an independent valuation expert. The Company anticipates the
independent valuation experts final valuation report will be completed by the
end of the Companys second fiscal quarter, October 31, 2007. The excess of the
purchase price over the fair value of net assets acquired was allocated to
goodwill. The Company believes the fair values assigned to the assets acquired
and liabilities assumed were based on reasonable assumptions.

Discontinued Operations

In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets,the results of the
Companys IRM division and ViaMode software product have been reported as
discontinued operations for the three months ended July 31, 2006. The
divestitures of these businesses in November 2006 were made pursuant to the
Companys strategy to refocus on its core software development and embedded
database products.

The IRM division sold and marketed the
NavRisk application. The NavRisk application is a policy administration and
underwriting software application used by underwriters, administrators and risk
managers of risk pools, risk retention groups, captives and self-insured
entities. ViaMode is a software and services solution that is used for driver
performance management within the transportation industry. Both IRM and
ViaModes historic revenues were the result of sales solely in North America.
The IRM division was previously reported as a separate segment and ViaMode was
included in the Americas segment. Operating results for the IRM division and
ViaMode software product are summarized as follows (in thousands):

|                                        | Three Months Ended
|--------------------------------------- | ------------------
|                                        | July 31, 2006     
|Revenue                                 | $                 
|Loss from
      discontinued operations | $                 

3. Stock Compensation
Information

Effective May 1, 2006, the Company adopted
the provisions of Statement of Financial Accounting Standards (SFAS) No.
123(R),Share-Based Payment,using the modified version of prospective application. Under
this method, compensation expense includes the estimated fair value of equity
awards vested during the reported period. Expense for equity awards vested is
determined based on grant date fair value previously calculated for pro forma
disclosures under SFAS No. 148, Accounting
for Stock-Based CompensationTransition and DisclosureAn Amendment of FASB
Statement No. 123. For the quarters ended
July 31, 2007 and 2006, equity-based compensation expense from continuing
operations was comprised of the following (in thousands):

Three Months Ended July
      31,2007
    
    2006Cost of Sales
    $
    1
    
    $
    Product
      Development
    
    6
    
    
    2Selling, General and Administrative
    
    36
    
    
    14Total
      Equity-Based Compensation, Continuing Operations
    
    43
    
    
    16Equity-Based Compensation, Discontinued Operations
    
    
    
    
    16Total
      Equity-Based Compensation
    $
    43
    
    $
    32


11

---

The following table shows remaining
unrecognized compensation expense from continuing operations on a pre-tax basis
related to all types of nonvested equity awards outstanding as of July 31, 2007.
This table does not include an estimate for future grants that may be issued (in
thousands).

|Fiscal Year Ending April
      30, |  | Amount
|---------------------------------- |  | ------
|Remainder of 2008                  |  | $     
|2009                               |  |       
|2010                               |  |       
|2011                               |  |       
|2012                               |  |       
|Total                              |  | $     

The cost above is expected to be
recognized over a weighted-average period of 1.4 years.

The Company continues to use the
Black-Scholes option pricing model to estimate fair value of equity awards,
which requires the input of highly subjective assumptions, including the
expected stock price volatility. The Companys calculations are made using the
Black-Scholes option pricing model, with the following weighted average
assumptions for the three months ended July 31, 2007 and 2006 respectively:
expected option life, 12 months following vesting; stock volatility of 96% and
181%; risk-free interest rates of 4.9% and 4.8% and no dividends during the
expected term. Not all stock options that have been granted will be exercised.
Accordingly, the Companys calculation of equity-based compensation expense
includes an adjustment for the estimated number of options that will be
forfeited.

Under the 2001 Stock Option Plan (the
2001 Option Plan), the Company may grant options to purchase up to 595,000
shares of common stock to eligible employees, directors, and consultants at
prices not less than the fair market value at the date of grant for incentive
stock options and not less than 85% of the fair market value at the date of
grant for non-statutory stock options. Options granted under the 2001 Stock
Option Plan generally vest over four years, are exercisable to the extent
vested, and expire 10 years from the date of grant. Under the 1991 Stock Option
Plan (the 1991 Option Plan) which expired as of March 2001, the Company was
able to grant options to eligible employees, directors and consultants at prices
not less than the fair market value at the date of grant for incentive stock
options and not less than 85% of the fair market value at the date of grant for
non-statutory stock options. Options granted under the 1991 Option Plan
generally vest over four years, are exercisable to the extent vested, and expire
10 years from the date of grant.

A summary of the Companys stock option
activity for the period ended July 31, 2007 is as follows:

WeightedWeighted
    
    average remaining
    
    Aggregateaverage
    
    contractual
    
    intrinsicShares
    
    exercise
      price
    
    term (in
      years)
    
    value (1)Outstanding at April 30, 2007
    453,243
    
    
    $
    2.92
    
    6.46
    
    $
    277,608Granted
    218,600
    
    
    $
    2.52Exercised
    (7,950
    )
    
    $
    1.82Canceled or expired
    (61,400
    )
    
    $
    3.34Outstanding at July 31, 2007
    602,493
    
    
    $
    2.74
    
    7.45
    
    $
    255,590Exercisable at July 31, 2007
    278,949
    
    
    $
    3.36
    
    5.04
    
    $
    158,104


(1)
    
    Aggregate intrinsic
      value is defined as the difference between the current market value and
      the exercise price and is estimated using the closing price of the
      Companys common stock on the last trading day of the periods ended as of
      the dates indicated.


Total intrinsic value of awards exercised
during the quarters ended July 31, 2007 and July 31, 2006 was $19,705 and $0
respectively. The total fair value of awards vested during the quarters ended
July 31, 2007 and July 31, 2006 was $64,000 and $32,000, respectively.

12

---

A summary of the Companys nonvested stock
option activity for the period ended July 31, 2007 is as follows:

| |                             |         |   |       | Weighted    
| | --------------------------- | ------- | - | ----- | ------------
| |                             |         |   |       | average fair
| |                             | Shares  |   | value
| | Nonvested at April 30, 2007 | 118,370 |   |       | $           
| | Granted                     | 218,600 |   |       | $           
| | Vested                      | (13,426 | ) |       | $           
| | Canceled or expired         |        |   |       | $           
| | Nonvested at July 31, 2007  | 323,544 |   |       | $           

4. Goodwill and Intangible Assets

The following tables present details of
the Companys goodwill and intangible assets as of July 31, 2007 and April 30,
2007 (in thousands):

|                    |  | Gross    |       |              |   |          |   | Net         |   |      
|------------------- |  | -------- | ----- | ------------ | - | -------- | - | ----------- | - | -----
|                    |  | carrying |       | Accumulated  |   | carrying |   | Estimated  
|July 31, 2007       |  | amount   |       | amortization |   | amount   |   | useful life
|Infinite Lives:     |  |          |       |              |   |          |   |             |   |      
|Goodwill            |  | $        | 5,644 |              | $ |         |   |             | $ | 5,644
|Finite
      Lives: |  |          |       |              |   |          |   |             |   |      
|Customer-related    |  |          | 1,536 |              |   | (200     | ) |             |   | 1,336
|Technology-based    |  |          | 1,338 |              |   | (175     | ) |             |   | 1,163
|Trademarks          |  |          | 300   |              |   | (50      | ) |             |   | 250  
|Trade name          |  |          | 100   |              |   | (67      | ) |             |   | 33   
|Total               |  | $        | 8,918 |              | $ | (492     | ) |             | $ | 8,426
|                   
|                   
|                    |  | Gross    |       |              |   |          |   | Net         |   |      
|                    |  | carrying |       | Accumulated  |   | carrying |   | Estimated  
|April 30, 2007      |  | amount   |       | amortization |   | amount   |   | useful life
|Infinite Lives:     |  |          |       |              |   |          |   |             |   |      
|Goodwill            |  | $        | 5,283 |              | $ |         |   |             | $ | 5,283
|Finite
      Lives: |  |          |       |              |   |          |   |             |   |      
|Customer-related    |  |          | 1,500 |              |   | (125     | ) |             |   | 1,375
|Technology-based    |  |          | 1,050 |              |   | (109     | ) |             |   | 941  
|Trademarks          |  |          | 300   |              |   | (31      | ) |             |   | 269  
|Trade name          |  |          | 100   |              |   | (42      | ) |             |   | 58   
|Total               |  | $        | 8,233 |              | $ | (307     | ) |             | $ | 7,926

Acquired finite-lived intangibles are
generally amortized on a straight line basis over their estimated useful life.
The useful life of finite-lived intangibles is the period over which the asset
is expected to contribute directly or indirectly to future cash flows of the
Company. Intangible assets amortization expense for continuing operations for
the three months ended July 31, 2007, was $184,000. Amortization expense for the
fiscal year ended April 30, 2007, was $121,000 and was related entirely to the
acquisition of Gupta. The estimated future amortization expense related to
intangible assets as of July 31, 2007, is as follows (in thousands):

| | Fiscal Year Ending April
      30, |  | Amount
| | ---------------------------------- |  | ------
| | Remainder of 2008                  |  | $     
| | 2009                               |  |       
| | 2010                               |  |       
| | 2011                               |  |       
| | 2012                               |  |       
| | Total                              |  | $     

13

---

Goodwill is included in the Companys
Americas segment as part of corporate assets. Goodwill at July 31, 2007,
represents the excess of the Gupta and Active Data Corporation purchase prices
over the sum of the amounts assigned to assets acquired less liabilities
assumed. The Company believes the acquisition of Gupta and Active Data
Corporation will produce the following results:

- Increased Market Presence and
  Opportunities: The combination of the Company with Gupta and Active Data
  Corporation should increase the combined companys market presence and
  opportunities for growth in sales and earnings.
- Enhanced Product Mix: The complementary
  nature of the Companys products with those of Gupta and Active Data
  Corporation should benefit current customers of both companies and provide the
  combined company with the ability to access new customers.
- Operating Efficiencies: The combination of
  the Company with Gupta and Active Data Corporation provides the opportunity
  for potential economies of scale and cost savings.

The Company believes these primary factors
support the amount of goodwill recognized as a result of the purchase price for
Gupta and Active Data Corporation. Goodwill will be tested for impairment on an
annual basis as of April 30, and between annual tests if indicators of potential
impairment exist, using a fair-value-based approach in accordance with FASB
142,Goodwill and Other Intangible
Assets. The determination of goodwill and
intangibles is based on the results of an independent valuation experts report.

Changes in the carrying amount of goodwill
for fiscal 2008 were as follows (in thousands):

| | Goodwill as of April 30, 2007                          | $ | 5,283
| | ------------------------------------------------------ | - | -----
| | Goodwill for
      Active Date Corporation acquisition |   | 361  
| | Goodwill as of July 31, 2007                           | $ | 5,644

5. Credit Facility

On November 20, 2006, the Company entered
into a revolving credit note agreement with ComVest Capital LLC. Under the terms
of the agreement the Company can borrow up to $2.5 million. As of July 31, 2007,
$1.85 million was outstanding on the revolver. The amount that can be borrowed
under the revolver is based on the amount of eligible foreign and domestic
accounts receivable outstanding. The revolver has an expiration date of November
30, 2010, and the Company incurs interest expense on funds borrowed at the
prevailing prime rate plus 2.25% per annum (10.5% as of July 31, 2007 and April
30, 2007).

6. Long-Term Debt

The Companys debt consists of the
following at July 31, 2007 and April 30, 2007 (in thousands):

July 31,
    
    April 30,2007
    
    2007Convertible notes payable to ComVest Capital LLC, interest rate of
      11.25%, payablein installments through October 31, 2011. These notes include
      certain negativecovenants and the Company is in compliance with such
      covenants.
    
    5,047
    
    
    
    5,350Revolving note payable to ComVest Capital LLC, interest rate of
      prime plus 2.25%and a maturity date of November 30, 2010
    
    1,850
    
    
    
    1,500Capital leases payable, payable in monthly installments through
      June 2010
    
    22
    
    
    
    256,919
    
    
    
    6,875Less discount on notes payable, net
    
    (553
    )
    
    
    (604
    )Less current
      portion
    
    (1,429
    )
    
    
    (1,361
    )Total long term debt, net
    $
    4,937
    
    
    $
    4,910


14

---

7. Other Long-Term
Liabilities

In France, the Company is subject to
mandatory employee severance costs associated with a statutory government
regulated plan covering all employees. The plan provides for one month of
severance for the first five years of service with an employer and one fifth of
one year of severance for every one year of service thereafter. In order to
receive their severance payment the employee may not retire before age 65 and
must be employed at the time of retirement. The balance as of July 31, 2007, and
April 30, 2007, was $108,000 and is reflected as other long-term liabilities.

8. Maintenance
Contracts

The Company offers maintenance contracts
to its customers at the time they enter into a product license agreement and
renew those contracts, at the customers option, annually thereafter. These
maintenance contracts are priced as a percentage of the value of the related
license agreement. The specific terms and conditions of these initial
maintenance contracts and subsequent renewals vary depending upon the product
licensed and the country in which the Company does business. Generally,
maintenance contracts provide the customer with unspecified product maintenance
updates and customer support services. Revenue from maintenance contracts is
initially deferred and then recognized ratably over the term of the agreements.

Changes in the Companys deferred
maintenance revenue from continuing operations during the periods are as follows
(in thousands):

Three Months EndedJuly 31,2007
    
    2006Deferred maintenance revenue beginning balance
    $
    5,500
    
    
    $
    2,810Deferred
      maintenance revenue recognized during period
    
    (2,361
    )
    
    
    (1,220
    )Deferred maintenance revenue of new maintenance
      contracts
    
    1,806
    
    
    
    659Deferred
      maintenance revenue ending balance
    $
    4,945
    
    
    $
    2,249


The Company adopted the
provisions of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes, on May 1, 2007. As required by Interpretation 48, which
clarifies Statement 109, Accounting for Income Taxes, the Company
recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting the
more-likely-than-notthreshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax authority. At
the adoption date, the Company applied Interpretation 48 to all tax positions
for which the statute of limitations remained open.

The amount of unrecognized
tax benefits as of May 1, 2007, was approximately $18.6 million. Realization of
unrecognized tax benefits is dependent upon future earnings, the timing and
amount of which are uncertain. Accordingly, the unrecognized tax benefits have
been fully offset by a valuation allowance. There have been no material changes
in unrecognized tax benefits since May 1, 2007.

The Company is subject to
income taxes in the U.S. federal jurisdiction, and various states and foreign
jurisdictions. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. In general, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for the
fiscal years before 2004. The Company does not believe there will be any
material changes in its unrecognized tax positions over the next 12 months.
Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FIN No. 48. and the adoption of FIN No. 48 did not have a
material effect on the Companys consolidated financial position or results of
operations.

The Companys policy is to
recognize interest and penalties accrued on any unrecognized tax benefits as a
component of income tax expense. As of July 31, 2007, the Company did not
have any accrued interest or penalties associated with any unrecognized tax
benefits, nor was any interest expense recognized in the three months ended
July 31, 2007.

10. Comprehensive Loss

Comprehensive loss includes net loss and
foreign currency translation gains. A comprehensive gain on foreign
currency translations for the three months ended of July 31, 2007 and 2006 was
$18,000 and $4,000 respectively.

11. Reverse Stock Split

On June 24, 2007, the Company implemented
a 1 for 5 reverse stock split. The reverse stock split had been previously
approved by the Companys stockholders as part of the Companys March 29, 2007
Annual Meeting.

15

---

12. Loss Per Share

Basic earnings per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the reporting period. Diluted earnings (loss) per share is
computed similar to basic earnings per share except that it reflects the
potential dilution that could occur if dilutive securities or other obligations
to issue common stock were exercised or converted into common stock. For the
three months ended July 31, 2007 and 2006, because of our reported net loss,
potentially dilutive securities were excluded from the per share computations
due to their antidilutive effect.

(in
      thousands, except per share amounts)
    Three Months Ended July
      31,2007
    
    2006Loss from continuing operations
    $
    (218
    )
    
    $
    (292
    )Loss from
      discontinued operations
    
    
    
    
    
    (462
    )Net loss
    $
    (218
    )
    
    $
    (754
    )Weighted average shares of common stock outstanding,
      basic
    
    6,037
    
    
    
    5,905Effect of
      dilutive securities
    
    
    
    
    
    Weighted average shares of common stock outstanding,
      diluted
    
    6,037
    
    
    
    5,905Earnings (loss) per share of common stock:Basic:Continuing operations
    $
    (0.04
    )
    
    $
    (0.05
    )Discontinued operations
    
    0.00
    
    
    
    (0.08
    )Total
    $
    (0.04
    )
    
    $
    (0.13
    )Assuming dilution:Continuing operations
    $
    (0.04
    )
    
    $
    (0.05
    )Discontinued operations
    
    0.00
    
    
    
    (0.08
    )Total
    $
    (0.04
    )
    
    $
    (0.13
    )


Potentially dilutive securities that are
not included in the diluted net loss calculation because they would be
antidilutive are employee stock options of 260,715 and 149,935 as of July 31,
2007 and 2006 respectively, and common stock warrants of 670,000 as of July 31,
2007 and no warrants as of July 31, 2006.

13. Segment Information

FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related
Information, establishes standards for
reporting information about operating segments. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Our chief operating decision maker is our Chief Executive Officer.
We are organized geographically. While our Chief Executive Officer evaluates
results in a number of different ways, our geographic structure is the primary
basis for which the allocation of resources and financial results are assessed.
The Company maintains two segments that sell and market application development
software and related services. The segments are the Americas, which includes the
Companys international distributors, and Europe, including the UK, France,
Germany and other direct European customers. Previously, the Company also
maintained a reportable segment for its Insurance Risk Management (IRM)
division. The IRM division sold and marketed the NavRisk application. In
November 2006, the IRM division and the Companys ViaMode software product were
sold. In the tables below, the IRM division and the Companys ViaMode software
product comprise the amounts presented as discontinued operations.

16

---

Financial information for the
      Companys reportable segments is summarized below (in thousands):Three Months EndedJuly 31,2007
    
    2006Total revenues:Americas (1)
    $
    1,870
    
    
    $
    770Europe (1)
    
    2,091
    
    
    
    963Total revenues from continuing operations
    
    3,961
    
    
    
    1,733Total revenues from discontinued
      operations
    
    
    
    
    
    363Total revenues
    $
    3,961
    
    
    $
    2,096Operating Income (loss):Americas (2)
    $
    (1,272
    )
    
    $
    (577
    )Europe
    
    1,380
    
    
    
    263Total operating income (loss) from continuing
      operations
    
    108
    
    
    
    (314
    )Total operating loss from discontinued
      operations
    
    
    
    
    
    (462
    )Total operating income (loss)
    $
    108
    
    
    $
    (776
    )Interest income (3)
    $
    3
    
    
    $
    21Interest expense (3)
    $
    279
    
    
    $
    2Total assets by
      segment were as follows (in thousands):July
      31,2007
    
    2006Assets:Americas
    $
    11,967
    
    
    $
    2,457Europe
    
    3,328
    
    
    
    2,168Total assets of continuing operations
    
    15,295
    
    
    
    4,625Assets held for sale
    
    
    
    
    
    1,960Total assets
    $
    15,295
    
    
    $
    6,585Total intersegment revenues were as
      follows (in thousands):Three Months EndedJuly
      31,2007
    
    
    2006Intersegment
      revenues:Americas
    $
    180
    
    
    $
    202Europe
    
    423
    
    
    
    0Total intercompany revenues:
    $
    603
    
    
    $
    202


17

---

|(1) |  | The Company allocates revenues to operating
      segments based on the location of the country where the license is
      installed or service is delivered. The accounting policies of the segments
      are the same as those described in Note 1.                                                                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) |  | Americas operating income (loss) is net of
      corporate product development and general and administrative
      expenses.                                                                                                                                                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) |  | Interest income and interest expense were
      primarily attributable to corporate assets located in the Americas for the
      periods presented. Interest expense in the first quarter of fiscal 2008
      consists primarily of interest incurred on notes payable resulting from a
      debt financing in conjunction with the acquisition of Gupta and also the
      amortization of related debt issuance costs.

18

---

UNIFY CORPORATION

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations

The discussion in this Quarterly Report
on Form 10-Q contains forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about the software industry and certain assumptions made by the
Companys management. Words such as anticipates, expects, intends,
plans, believes, seeks, estimates, variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Such risks and uncertainties include, but are
not limited to, those set forth herein under Volatility of Stock Price and
General Risk Factors Affecting Quarterly Results and in the Companys Annual
Report on Form 10-K under Business  Risk Factors. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the risk factors set forth in other
reports or documents the Company files from time to time with the SEC,
particularly the Companys Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.

The following discussion should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements and
Notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q/A and with
the audited Consolidated Financial Statements and Notes thereto, together with
Managements Discussion and Analysis of Financial Condition and Results of
Operations, which are included in the Companys Annual Report on Form 10-K/A for
the fiscal year ended April 30, 2007, as filed with the SEC.

Overview

Unify (the Company, we, us or our)
is a global provider of application development and data management software,
and Service-Oriented Architecture (SOA) enablement application modernization
solutions. Our suite of migration solutions, easy to use development software
and no-maintenance-required embedded databases enable customers to enhance their
SOA environment by improving time-to-market metrics, increasing collaboration
and service-enabling legacy information. Specifically, our products include
embedded and enterprise data management systems, application development
software for legacy application modernization and rich Internet application
development, and SOA application modernization solutions.

On September 13, 2006, the Company entered
into a Purchase and Exchange Agreement (Purchase Agreement) with Halo
Technology Holdings, Inc. (Halo) whereby Unify agreed to purchase Gupta from
Halo in exchange for: (i) the Companys Insurance Risk Management (IRM)
division, (ii) the Companys ViaMode software, (iii) $6,100,000 in cash, and
(iv) the amount, if any, by which Guptas net working capital exceeds IRMs net
working capital at the close of the transaction (the Purchase and Exchange).
The Companys acquisition of Gupta was consummated on November 20, 2006.

On November 20, 2006, the Company entered
into various agreements with ComVest Capital LLC (ComVest) whereby ComVest,
along with participation from Special Situations Funds, provided debt financing
for the Gupta acquisition and for working capital, consisting of convertible
term loans totaling $5.35 million and a revolving credit facility of up to $2.5
million. The term loans have an interest rate of 11.25% and have terms of 48 to
60 months. The revolver has an interest rate of prime plus 2.25% and has a
maturity date of November 30, 2010. As part of the financing, ComVest received
402,000 warrants and Special Situations Funds received 268,000 warrants. The
warrants are for the purchase of common stock at prices from $1.35 to $1.90 per
share. The agreements provide for ComVest to have a security interest in
substantially all of the Companys assets.

Today, Unifys customers include corporate
information technology departments (IT), software value-added resellers
(VARs), solutions integrators (SIs) and independent software vendors
(ISVs) from a variety of industries, including insurance, financial services,
healthcare, government, manufacturing, retail, education, and more. We are
headquartered in Sacramento, California, with offices in Australia, France,
Germany, and the United Kingdom (UK). We market and sell products directly in
the United States, Europe, and Australia and indirectly through global
distributors representing more than 50 countries.

19

---

Our mission is to enable customers to
modernize mission critical applications while maximizing legacy investments in
SOA. Our software and solutions give customers a rich user experience, quality
information and a high degree of customer satisfaction.

Our strategy is to work with IT
organizations to Enable SOA. Our software and solutions help businesses
modernize and service-enable mission critical legacy applications in support of
enterprise-wide SOA initiatives. Based on market requirements for SOA-based
application modernization, our strategy aims to help companies increase speed
and agility, consolidate information from multiple sources, improve asset reuse,
lower IT costs, reduce business risks and exposures, and free information
previously locked within proprietary systems.

The Company sells and markets application
development and database software and services and modernization solutions
through two segments. The segments are the Americas, which includes the
Companys international distributors, and Europe, which includes the UK, France,
Germany and other direct European customers.

Our technology products include Composer,
NXJ, Team Developer, ACCELL, VISION, DataServer, and SQLBase. Our customers are
corporate end-user IT departments, ISVs and our worldwide distributors. The
Company is committed to providing exceptional technology to this customer base
and to continue to meet their current and future technology needs. Services to
our extensive customer base include sales and marketing, support, and
professional services.

Critical Accounting
Policies

The following discussion and analysis of
the Companys financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent liabilities. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The areas that require
significant judgment are as follows.

Revenue Recognition  Continuing
Operations

The Company generates revenue from
software license sales and related services, including maintenance and support,
and consulting services. The Company licenses its products to end-user
customers, independent software vendors (ISVs), international distributors and
value-added resellers (VARs). The Companys products are generally sold with a
perpetual license. The Companys contracts with ISVs, VARs and international
distributors do not include special considerations such as rights of return,
stock rotation, price protection, special acceptance or warranty provisions. The
Company recognizes revenue for software license sales in accordance with
Statement of Position (SOP) 97-2,Software
Revenue Recognition. For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectibility is probable and persuasive evidence of an arrangement exists.

The Company considers a signed
noncancelable license agreement, a customer purchase order, a customer purchase
requisition, or a sales quotation signed by an officer of the customer to be
persuasive evidence that an arrangement exists such that revenue can be
recognized.

The Companys customer contracts include
multi-element arrangements that include a delivered element (a software license)
and undelivered elements (such as maintenance and support and/or consulting).
The value allocated to the undelivered elements is unbundled from the delivered
element based on vendor-specific objective evidence (VSOE) of the fair value of
the maintenance and support and/or consulting, regardless of any separate prices
stated within the contract. VSOE of fair value is defined as: (i) the price
charged when the same element is sold separately, or (ii) if the element has not
yet been sold separately, the price for the element established by management
having the relevant authority when it is probable that the price will not change
before the introduction of the element into the marketplace. The Company then
allocates the remaining balance to the delivered element (a software license)
regardless of any separate prices stated within the contract using the residual
method as the fair value of all undelivered elements is determinable.

We defer revenue for any undelivered
elements, and recognize revenue for delivered elements only when the fair values
of undelivered elements are known, uncertainties regarding customer acceptance
are resolved, and there are no customer-negotiated refund or return rights
affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered
elements.

20

---

An assessment of the ability of the
Companys customers to pay is another consideration that affects revenue
recognition. In some cases, the Company sells to undercapitalized customers. In
those circumstances, revenue recognition is deferred until cash is received, the
customer has established a history of making timely payments or the customers
financial condition has improved. Furthermore, once revenue has been recognized,
the Company evaluates the related accounts receivable balance at each period end
for amounts that we believe may no longer be collectible. This evaluation is
largely done based on a review of the financial condition via credit agencies
and historical experience with the customer. Any deterioration in credit
worthiness of a customer may impact the Companys evaluation of accounts
receivable in any given period.

Revenue from support and maintenance
activities, which consist of fees for ongoing support and unspecified product
updates, are recognized ratably over the term of the maintenance contract,
typically one year, and the associated costs are expensed as incurred.
Consulting service arrangements are performed on a best efforts basis and are
generally billed under time-and-materials arrangements. Revenues and expenses
relating to providing consulting services are recognized as the services are
performed.

Revenue Recognition  Discontinued
Operations

For the discontinued product, NavRisk, the
Company recognized revenue for software licenses sales in accordance with
Statement of Position 81-1,Accounting for
Performance of Construction-Type and Certain Production-Type
Contractsand Accounting Research Bulletin
(ARB) 45,Long-Term Construction Type
Contracts. The majority of the software
license arrangements required significant modification or customization of the
underlying software, therefore, revenue was recognized based on contract
accounting under the provisions of Accounting Research Bulletin
45,Long-Term Construction Type
Contractsand Statement of Position
81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsusing the completed-contract method. The Company exercised
judgment in connection with the determination of the amount of software and
services revenue to be recognized in each accounting period. The nature of each
licensing arrangement determined how revenues and related costs were
recognized.

Valuation of Long-Lived Assets

Our long-lived assets are comprised of
long-term investments. At July 31, 2007, we had $214,000 in long-term
investments, which are accounted for under the cost method. We assess the
valuation of long-lived assets whenever circumstances indicate that there is a
decline in carrying value below cost that is other-than-temporary. Several
factors can trigger an impairment review such as significant underperformance
relative to expected historical or projected future operating results and
significant negative industry or economic trends. In assessing potential
impairment for such investments, we consider these factors as well as the
forecasted financial performance. When such decline in value is deemed to be
other-than-temporary, we recognize an impairment loss in the current period
operating results to the extent of the decline. Future adverse changes in market
conditions or poor operating results could result in losses or an inability to
recover the carrying value of the long-term investments that is not currently
reflected in the investments carrying value, thereby, possibly requiring
impairment charges in the future.

Deferred Tax Asset Valuation
Allowance

As of July 31, 2007, we had approximately
$18.6 million of deferred tax assets related principally to net operating loss
carryforwards, reserves and other accruals, deferred revenue, and foreign tax
credits. The Companys ability to utilize net operating loss carryforwards may
be subject to certain limitations in the event of a change in ownership. A
valuation allowance has been recorded to offset these deferred tax assets. The
ability of the Company to ultimately realize its deferred tax assets will be
contingent upon the Company achieving taxable income. There can be no assurance
that this will occur in amounts sufficient to utilize the deferred tax assets.
Should we determine that we would be able to realize the deferred tax assets in
the future in excess of the recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made. At July
31, 2007, the Company had approximately $40.7 million in federal net operating
loss carryforwards that begin to expire in fiscal year 2008 through 2026,
approximately $6.2 million in state net operating loss carryforwards that expire
in fiscal years 2013 to 2016, approximately $0.6 million in foreign net
operating loss carryforwards that do not expire and approximately $3.5 million
in capital loss carryforwards that expire in 2010. The Companys ability to
utilize these net operating loss carryforwards may be subject to certain
limitations in the event of a change in ownership.

21

---

Results of Operations

The following table sets forth, for the
periods indicated, certain financial data as a percentage of total revenue:

|                                                   | Three Months Ended |  
|-------------------------------------------------- | ------------------ | -
|                                                   | July
      31,     |  
|                                                   | 2007               |  
|Revenues:                                          |                    |  
|Software licenses                                  | 36.9               |  
|Services                                           | 63.1               |  
|Total revenues                                     | 100.0              |  
|                                                  
|Cost of Revenues:                                  |                    |  
|Software licenses                                  | 1.2                |  
|Services                                           | 4.9                |  
|Total cost of revenues                             | 6.1                |  
|                                                  
|Gross profit                                       | 93.9               |  
|                                                  
|Operating Expenses:                                |                    |  
|Product development                                | 23.0               |  
|Selling, general and administrative                | 68.2               |  
|Total operating expenses                           | 91.2               |  
|Income (loss) from operations                      | 2.7                |  
|Other income
      (expense), net                  | (8.0               | )
|Loss
      from continuing operations before taxes | (5.3               | )
|Provision for
      income taxes                   | (0.2               | )
|Loss
      from continuing operations              | (5.5               | )
|Loss from discontinued operations, net of taxes    | 0.0                |  
|Net
      loss                                     | (5.5               | )

Total Revenues

The Company generates revenue from
software license sales and related services, including maintenance and support,
and consulting services. We license our software through our direct sales force
in the United States and Europe, and through indirect channels comprised of
distributors, ISVs, VARs, and other partners worldwide. International revenues
accounted for 75% and 68% of total revenues in the first quarter of fiscal year
2007 and 2006, respectively.

Total revenues in the first quarter of
fiscal 2008 were $4.0 million, an increase of $2.3 million. This represents an
increase of 135% over the first quarter of fiscal 2007 revenues of $1.7 million.
The increase in total revenue was primarily due to our acquisition of Gupta in
November 2006 which resulted in both an increase in maintenance service revenues
and an increase in software license revenue. Total software license revenues in
the first quarter of fiscal 2008 were $1.5 million, an increase of $1.1 million
or 275% from the first quarter of fiscal 2007. The increase in license revenues
in the first quarter of fiscal 2008 was the result of an increase in the number
of high dollar value sales that occurred during the quarter compared to the
first quarter of fiscal 2007. In particular, we closed several high dollar value
orders in our Asian territory. Total services revenues were $2.5 million in the
first quarter of fiscal 2008, an increase of $1.2 million or 92% from the first
quarter of fiscal 2007.

For the first quarter of fiscal 2008 and
2007, total revenues from the Americas were 47% and 44% of total revenues,
respectively. Total revenue from the Americas in absolute dollars was $1.9
million for the first quarter of fiscal 2008 and $0.8 million for the first
quarter of fiscal 2007. Total revenue from our European territory was $2.1
million in the first quarter of fiscal 2008 and $0.9 million for the first
quarter of fiscal 2007. On a percentage basis, revenue from our European
territory was 53% for the first quarter of fiscal 2008 and 56% for fiscal
2007.

22

---

Cost of Revenues

Cost of Software Licenses.Cost of software licenses consists primarily
of expenses associated with royalty payments and the amortization of purchased
technology from third parties that is amortized ratably over the technologys
expected useful live. Cost of software licenses was approximately $0.05 million
for both the first quarter of fiscal 2008 and 2007.

Cost of Services.Cost of services consists primarily of employee, facilities
and travel costs incurred in providing customer support under software
maintenance contracts and consulting and implementation services. Total cost of
services was $0.2 million for both the first quarter of fiscal 2008 and fiscal
2007. Our cost of services as a percent of services revenues was 8% and 19% in
the first quarter of fiscal 2008 and fiscal 2007, respectively. The favorable
decrease in the percentage of cost of service expenses to services revenue in
fiscal 2008 was the result of adding over $1.1 million in maintenance service
revenues while also enjoying positive economies of scale relative to expenses as
a result of our acquisition of Gupta.

Operating Expenses

Product Development.Product development expenses consist primarily of employee and
facilities costs incurred in the development and testing of new products and in
the porting of new and existing products to additional hardware platforms and
operating systems. Product development costs in the first quarter of fiscal 2008
were $0.9 million compared to $0.4 million in the same period of fiscal 2007.
The increase in product development costs was the addition of the Gupta product
development team plus additional outsourced development costs associated with
efforts to develop a new release of Guptas Team Developer product.

Selling, General and Administrative.Selling, general and administrative
(SG&A) expenses consist primarily of salaries and benefits, marketing
programs, travel expenses, professional services, facilities expenses and bad
debt expense. SG&A expenses were $2.7 million in the first quarter of fiscal
2008 and $1.4 million for the first quarter of fiscal 2007. The increase in
SG&A costs in fiscal 2008 is the result of adding Gupta staff in the areas
of sales, marketing and administrative services. In the first quarter of fiscal
2008 and fiscal 2007 our SG&A expenses as a percent of total revenues was
68% and 78%, respectively. The major components of SG&A for the first three
months of fiscal 2008 were sales expenses of $1.3 million, marketing expenses of
$0.3 million and general and administrative expenses of $1.1 million. For the
first quarter of fiscal 2007, the major components of SG&A were sales
expenses of $0.6 million, marketing expenses of $0.1 million and general and
administrative expenses of $0.7 million.

Other Income (Expense),
Net.Other income (expense), net consists
primarily of interest expense, foreign exchange gains and losses and interest
earned by the Company on our cash and cash equivalents. Interest expense for the
first quarter of fiscal 2008 was $279,000 and was $1,500 for the first quarter
of fiscal 2007. Fiscal 2008 interest expense consists primarily of interest
incurred on notes payable resulting from a debt financing in conjunction with
the acquisition of Gupta plus the amortization of related debt issuance costs.
Foreign exchange gains for the first quarter of fiscal 2008 and 2007 were
$31,000 and $2,000, respectively. Included in other income (expense) in the
first quarter of fiscal 2008 is an expense of $73,000 for penalties associated
with commitments related to a registration statement. Pursuant to the debt
financing agreement entered into with ComVest in conjunction with the Gupta
acquisition, the Company is subject to a $1,000 per day penalty for each day
following six months from the date of the financing that the shares of ComVest
are not registered and deemed effective by the SEC. While the Company has made
several filings with the SEC in an attempt to have the shares deemed effective,
such notification has yet to be received from the SEC and the Company is
incurring the penalty per the debt financing agreement.

Provision for Income Taxes.For the first quarter of fiscal 2008, the
Company recorded $10,000 in federal tax expense and no expense for state or
foreign taxes. For the first quarter of fiscal 2007, the Company recorded no
state, federal or foreign tax expense.

Discontinued Operations

In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets,the results of the
Companys IRM division and ViaMode software product which were sold in November
2006 have been reported as discontinued operations for the three months ended
July 31, 2006. The divestitures of these businesses were made pursuant to the
Companys strategy to refocus on its core software development and embedded
database products.

23

---

The IRM division sold and marketed the
NavRisk application. The NavRisk application is a policy administration and
underwriting software application used by underwriters, administrators and risk
managers of risk pools, risk retention groups, captives and self-insured
entities. ViaMode is a software and services solution that is used for driver
performance management within the transportation industry. Both IRM and
ViaModes historic revenues were the result of sales solelyin North America. The IRM division was previously reported as
a separate segment and ViaMode was included in the Americas segment. Operating
results for the IRM division and ViaMode software product are summarized as
follows (in thousands):

Three Months Ended July
      31,2007
    
    2006Revenue
    
    $
    
    
    $
    363Loss from
      discontinued operations
    
    $
    
    
    $
    (462
    )


Liquidity and Capital
Resources

At July 31, 2007, the Company had cash and
cash equivalents of $1.9 million, compared to $2.1 million at April 30, 2007.
The Company had accounts receivable of $3.9 million as of July 31, 2007 and $4.4
million as of April 30, 2007.

On November 20, 2006, the Company entered
into various agreements with ComVest whereby ComVest, along with participation
from Special Situations Funds, provided debt financing for the Gupta acquisition
and for working capital, consisting of convertible term loans totaling $5.35
million and a revolving credit facility of up to $2.5 million. The term loans
have an interest rate of 11.25% and have terms of 48 to 60 months. The revolver
has an interest rate of prime plus 2.25% and has a maturity date of November 30,
2010. As of July 31, 2007, there was $1.85 million outstanding on the
revolver. As part of the financing, ComVest received 402,000 warrants and
Special Situations Funds received 268,000 warrants. The warrants are for the
purchase of common stock at prices from $1.35 to $1.90 per share. The agreements
provide for ComVest to have a security interest in substantially all of the
Companys assets.

We believe that existing cash, $1.9
million as of July 31, 2007, along with forecasted operating cash flows for
fiscal year 2008 and the ComVest credit facility, will provide us with
sufficient working capital for us to meet our operating plan for fiscal year
2008. The fiscal 2008 operating plan assumes normal operations for the Company,
capital expenditures of approximately $50,000 and required interest and
principal payments on debt.

Operating Cash Flow.In the first quarter of fiscal 2008, we had cash flows from
continuing operations of $32,000. This compares to fiscal 2007 first quarter
cash flows from continuing operations of $0.9 million. Cash flows provided by
operations for the first quarter of fiscal 2008 principally resulted from a $0.5
million decrease in accounts receivable, a $0.3 million increase in accounts
payable, a $0.1million decrease in prepaid expenses and other current assets,
$0.2 million in amortization and $0.1 million in depreciation. Offsetting these
amounts was a loss from continuing operations for the first quarter of fiscal
year 2008 of $0.2 million, a decrease of $0.6 million in deferred revenue, a
decrease of $0.2 million in other accrued liabilities, a decrease of $0.1
million in accrued acquisition costs and a decrease of $0.1 million in
fulfillment of support obligations.

In the first quarter of fiscal 2007, the
positive operating cash flows of $0.9 million from continuing operations
principally resulted from a $2.2 million decrease in accounts receivable.
Offsetting this was a net loss from continuing operations of $0.3 million, a
decrease in deferred revenue of $0.6 million, a $0.3 million decrease in accrued
compensation and related expenses and a decrease in accounts payable of $0.1
million.

Investing Cash Flows.Cash used in investing activities for continuing operations
was a negative $0.3 million for the first quarter of fiscal 2008. The use of
cash consisted of $0.3 million expended related to the acquisition of Active
Data Corporation and $39,000 for the purchase of property and equipment. Cash
used in investing activities for continuing operations was $31,000 in for the
first quarter of fiscal 2007 and was related entirely to the purchase of
property and equipment.

Financing Cash Flows.Net cash provided by financing activities for continuing
operations in the first quarter of fiscal 2008 was $0.1 million. Cash from
financing activities was the result of $0.5 million from borrowings under the
Companys revolver note. In the first quarter of fiscal 2008 $0.5 million in
cash was used to make principal payments on debt obligations. In the first
quarter of fiscal 2007 cash used by financing activities was $19,000 and was the
result of cash payments for principal payments on debt.

24

---

A summary of certain contractual
obligations as July 31, 2007 is as follows (in thousands):

|                                         |  | Payments Due by Period
|---------------------------------------- |  | ----------------------
|                                         |  |                       
|Contractual Obligations                  |  | Total                 
|Long-term debt                           |  |                       
|Revolver
      note                      |  |                       
|Other long-term liabilities              |  |                       
|Capital
      leases                     |  |                       
|Operating leases                         |  |                       
|Total
      contractual cash obligations |  | $                     

Volatility of Stock Price and General
Risk Factors Affecting Quarterly Results

Unifys common stock price has been and is
likely to continue to be subject to significant volatility. A variety of factors
could cause the price of the common stock to fluctuate, perhaps substantially,
including: announcements of developments related to our business; fluctuations
in the operating results and order levels of Unify or its competitors; general
conditions in the computer industry or the worldwide economy; announcements of
technological innovations; new products or product enhancements from us or our
competitors; changes in financial estimates by securities analysts; developments
in patent, copyright or other intellectual property rights; and developments in
our relationships with our customers, distributors and suppliers; legal
proceedings brought against the Company or its officers; and significant changes
in our senior management team. In addition, in recent years the stock market in
general, and the market for shares of equity securities of many high technology
companies in particular, have experienced extreme price fluctuations which have
often been unrelated to the operating performance of those companies. Such
fluctuations may adversely affect the market price of our common stock.

Unifys stock trades over-the-counter on
the bulletin board. Companies whose shares trade over-the-counter generally
receive less analyst coverage and their shares are more thinly traded than stock
that is traded on the NASDAQ National Market System or a major stock exchange.
Our stock is therefore subject to greater price volatility than stock trading on
national market systems or major exchanges.

Unifys quarterly operating results have
varied significantly in the past and we expect that they could vary
significantly in the future. Such variations could result from the following
factors: the size and timing of significant orders and their fulfillment; demand
for our products; the quantity, timing and significance of our product
enhancements and new product announcements or those of our competitors; our
ability to attract and retain key employees; seasonality; changes in our pricing
or our competitors; realignments of our organizational structure; changes in
the level of our operating expenses; incurrence of extraordinary operating
expenses, changes in our sales incentive plans; budgeting cycles of our
customers; customer order deferrals in anticipation of enhancements or new
products offered by us or our competitors; product life cycles; product defects
and other product quality problems; currency fluctuations; and general domestic
and international economic and political conditions.

Due to the foregoing factors, quarterly
revenues and operating results may vary on a quarterly basis. Revenues and
quarterly results may vary because software technology is rapidly evolving, and
our sales cycle, from initial evaluation to purchase and the providing of
maintenance services, can be lengthy and varies substantially from customer to
customer. Because we normally deliver products within a short time of receiving
an order, we typically do not have a backlog of orders. As a result, to achieve
our quarterly revenue objectives, we are dependent upon obtaining orders in any
given quarter for shipment in that quarter. Furthermore, because many customers
place orders toward the end of a fiscal quarter, we generally recognize a
substantial portion of our software license revenues at the end of a quarter.
Our expense levels largely reflect our expectations for future revenue and are
therefore somewhat fixed in the short term.

We expect that our operating results will
continue to be affected by the continually challenging IT economic environment
as well as by seasonal trends. In particular, we generally experience weak
demand in the fiscal quarters ending July 31 and October 31 as a result of
reduced business activity in Europe during the summer months.

25

---

Item 3. Quantitative and Qualitative
Disclosures about Market Risk

Interest Rate Risk. The Companys exposure to market rate risk for changes in
interest rates relates primarily to its investment portfolio, which consists of
cash equivalents. Cash equivalents are highly liquid investments with original
maturities of three months or less and are stated at cost. Cash equivalents are
generally maintained in money market accounts which have as their objective
preservation of principal. The Company does not believe its exposure to interest
rate risk is material for cash and cash equivalents, which totaled $1.9 million
as of July 31, 2007. Unify had no short-term investments at July 31, 2007.

In November 2006, the Company entered into
a revolving credit facility agreement with ComVest whereby ComVest would provide
up to $2.5 million through a revolving credit facility. The revolver has an
interest rate of prime plus 2.25% and has a maturity date of November 30, 2010.
Should the prime interest rate increase during the life of the revolver, the
Company would have exposure to interest rate risk if it has a large balance
outstanding on the revolver. As of July 31, 2007, there was $1.85 million
outstanding on the revolver.

Unify does not use derivative financial
instruments in its short-term investment portfolio, and places its investments
with high quality issuers only and, by policy, limits the amount of credit
exposure to any one issuer. The Company is averse to principal loss and attempts
to ensure the safety of its invested funds by limiting default, market and
reinvestment risk.

Foreign Currency Exchange Rate
Risk. As a global concern, the Company faces
exposure to adverse movements in foreign currency exchange rates. These
exposures may change over time as business practices evolve and could have an
adverse impact on the Companys business, operating results and financial
position. Historically, the Companys primary exposures have related to local
currency denominated sales and expenses in Europe, Japan and Australia. For
example, when the U.S. dollar strengthens against the major European currencies,
it results in lower revenues and expenses recorded for those regions when
translated into U.S. dollars.

Due to the substantial volatility of
currency exchange rates, among other factors, the Company cannot predict the
effect of exchange rate fluctuations on its future operating results. Although
Unify takes into account changes in exchange rates over time in its pricing
strategy, it does so only on an annual basis, resulting in substantial pricing
exposure as a result of foreign exchange volatility during the period between
annual pricing reviews. The Company also has currency exchange rate exposures on
intercompany accounts receivable and intercompany accounts payable related to
activities with the Companys subsidiaries in France, Germany and the UK. At
July 31, 2007, the Company had $2.3 million in such payables denominated in
euros and a total $2.3 million in receivables denominated in euros and pounds
sterling. The Company encourages prompt payment of intercompany balances in
order to minimize its exposure to currency fluctuations, but it engages in no
hedging activities to reduce the risk of such fluctuations. A hypothetical ten
percent change in foreign currency rates could have a significant impact on the
Companys business, operating results and financial position. The Company has
not experienced material exchange losses on intercompany balances in the past;
however, due to the substantial volatility of currency exchange rates, among
other factors, it cannot predict the effect of exchange rate fluctuations on its
future business, operating results and financial position.

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer,
we evaluated the effectiveness of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls were effective as of the end of the period covered by this
quarterly report, except for the potential impact from reporting the Gupta acquisition, as more fully disclosed in Note 2 to the unaudited condensed consolidated financials statements under Part 1, Item 1 of this report.
We are currently in the process of assessing and integrating Gupta disclosure
controls and procedures into our financial reporting systems and expect to
complete our integration activities over a period of 12 months from the
acquisition date (November 20, 2006). Prior to being acquired by Unify, Gupta
was a subsidiary of a public company, Halo Technology Holdings, Inc. In
conjunction with Halos Form 10-KSB filing for the year ended June 30, 2006,
Halos management reported no concerns relative to disclosure controls or
procedures for Gupta Technologies LLC (Gupta) or any of Guptas subsidiaries.

In December 2007, the Company determined
that due to an accounting error it would restate its consolidated financial
statements for the fiscal year ended April 30, 2007 included in its 2007 Annual
Report on Form 10-K and its condensed consolidated financial statements for the
quarters ended January 31, 2007 and July 31, 2007. The decision to restate the
consolidated financial statements was made by the Audit Committee of the
Companys Board of Directors. The restatement reflects the
identification of an error related to the accounting for the acquisition of
Gupta Technologies LLC (Gupta) in November 2006. The acquisition of Gutpa was
part of a purchase and exchange agreement whereby, in addition to acquiring
Gupta, the Company also sold its Insurance Risk Management Division. In
accounting for the purchase and exchange transaction, the Company incorrectly
capitalized $384,000 in future payments as direct costs of the sale and
acquisition. The future payments of $384,000 have been determined to be indirect
costs of the sale and should have been expensed. The restatement increases the Companys loss
from discontinued operations for the fiscal year ended April 30, 2007 and the
quarter ended January 31, 2007 by $384,000 and increases the Companys net loss
by the same amount. The restatement also decreases the amount reported as
goodwill by $384,000 as of April 30, 2007 and the quarters ended January 31,
2007 and July 31, 2007.

As a result of the error noted above, the Company identified a
significant deficiency in internal control related to the accounting for non-routine complex transactions.
In the future, the Company intends to engage an
outside accounting expert to advise it regarding any complex non-routine
transactions to ensure accounting entries are properly recorded. The Company
believes this change to our system of disclosure and procedure controls will be
adequate to provide reasonable assurance that the information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and
reported correctly.

(b)Changes in Internal Controls. There
have been no changes in our internal controls over financial reporting that
occurred during the first three months of fiscal year 2008, that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting, except for the potential impact from reporting the
Gupta acquisition, as more fully disclosed in Note 2 to the unaudited condensed
consolidated financials statements contained in this report. We are currently in
the process of assessing and integrating Gupta financial reporting into our
financial reporting systems and expect to complete our integration activities
over a period of 12 months from the acquisition date (November 20, 2006).

26

---

UNIFY CORPORATION

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

The Company is subject to legal
proceedings and claims arising in the ordinary course of business. The Company
intends to vigorously assert its rights and defend itself in any litigation that
may arise from such claims. While the ultimate outcome and resolution of these
matters could affect the results of operations in future periods, and while
there can be no assurance with respect thereto, management believes after final
disposition, any financial impact to the Company would not be material to the
Companys consolidated financial position, results of operations and cash flows.

27

---

Item 6. Exhibits

|     |  | Exhibits                                                                                                                                              
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer under Section 302 of the
      Sarbanes-Oxley Act of 2002.                                                   
|     |  |                                                                                                                                                       
|31.2 |  | Certification of Chief Financial Officer under Section 302 of the
      Sarbanes-Oxley Act of 2002.                                                   
|     |  |                                                                                                                                                       
|32.1 |  | Certification of Chief Executive Officer under 18 U.S.C Section
      1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
|     |  |                                                                                                                                                       
|32.2 |  | Certification of Chief Financial Officer under 18 U.S.C Section
      1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.

28

---

UNIFY CORPORATIONSIGNATURE

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

|Date: December 14,
      2007 |  | Unify
      Corporation                           
|----------------------------- |  | --------------------------------------------------
|                              |  | (Registrant)                                      
|                             
|                              |  | By:                                               
|                             
|                              |  | /s/ STEVEN D. BONHAM                              
|                              |  | Steven D.
      Bonham                            
|                              |  | Chief
      Financial Officer                     
|                              |  | (Principal Financial and
      Accounting Officer)

29

---